Computer Associates Fights Antitrust Battle

Computer Associates International is continuing to battle the Department of Justice, after the agency last month hit the company with a lawsuit alleging antitrust violations in connection with CA's $3.5 billion acquisition of Platinum Technology Internati

Computer Associates International is continuing to battle the Department of Justice, after the agency last month hit the company with a lawsuit alleging antitrust violations in connection with CAs $3.5 billion acquisition of Platinum Technology International in May 1999.
The DOJs suit alleges that the two companies prematurely reduced competition between them by agreeing to limit discounts offered to customers before the deal was completed. In other words, according to the DOJs allegations, the companies were acting as one before the government approved the deal.

The DOJ uses the time between acquisition proposals and approvals to investigate possible antitrust violations. The suit names Platinum in addition to CA, which is based in Islandia, N.Y., and seeks fines of $1.27 million. CA, the fourth largest software company in the world, had sales of $734 million in the third quarter of 2001.

What mystifies CA representatives is that if the DOJ now believes the terms of its agreement with Platinum created antitrust concerns, why did the government already approve the deal?
A press release on CAs Web site says the DOJ not only thoroughly investigated the deal, but was fully aware of the provision the agency is contesting and did not take action then. In addition, the company said, the contractual provisions that CA used in its deal with Platinum were virtually identical to those it has used in numerous acquisitions over the past 14 years, and the DOJ investigated all of those without incident.
"We have been cooperating fully with the DOJ for the past two and a half years, and we are extremely disappointed by their actions," Steven Woghin, CAs senior vice president and general counsel, said in a prepared statement.
Woghin said that the agreement to limit discounts was one of the many restrictions companies regularly put in place at the beginning of merger agreements, and that this deal was no different.
Michael Dortch, a principal analyst of Robert Francis Group, whose clients include businesses that use CA software, said the DOJ has yet to make it clear why it is prosecuting CA now, especially if its true that this provision was no different than in CAs other acquisitions.
"[The DOJ] either needs to say, CA did this, and here is the evidence, or they need to make clear why the way CA did this is materially different from the way CA made other acquisitions these same overseers approved," Dortch said.
The last seven months have been eventful for CA, to say the least. In April, news reports said that CAs financial statements were doctored by the use of pro forma reporting, an accusation that CA flatly denies.
Then this summer, CA was embroiled in a shareholder proxy battle over control of the companys board of directors. CAs incumbent board won the battle, but the shareholder vote was closer than Chairman Charles Wang and CEO Sanjay Kumar would have liked.